On Wednesday, the Federal Reserve increased interest rates by another 0.75 percent for a total rate of 2.25 percent. This is the rate banks charge each other for overnight loans and sets the base for other interest rates. Apparently, they believe this is the best move to stop inflation.
I am not an economics major, so please note that the following is merely my opinion.
I knew that the low-interest rates we have enjoyed since the 2009 housing debacle would eventually end. I honestly just didn’t expect that the Federal Reserve, also commonly referred to as the central bank of the United States, would choose to increase the rates on the American public so much during a time when the cost of goods has skyrocketed exponentially.
Raising the rates was inevitable, I think we all can agree on that. However, the outlook is not favorable as additional increases are still coming this year.
The common sense side of me doesn’t understand why it is necessary to raise everything so rapidly, during a time when Americans are already struggling. Why is there not a five-year plan of small increases to reach the goal? Maybe there are economics majors out there who can explain how penalizing the middle class stops inflation.
I watched a very good live event last week hosted by Dave Ramsey, who has been in real estate longer than I have been alive. During the event, he talks about the likelihood of the real estate market crashing. It was full of great graphs and charts, all pointing to one really powerful message: In the history of housing in our country, house prices have never gone backward, except for the 2009 housing collapse, which was man-made by sketchy lending practices, and still a small blip in the timeline. Those lending practices have all been eliminated, leading to mortgages held by truly qualified borrowers today.
This live event was free and you can still view it on YouTube. It is titled “Is the Housing Market Going to Crash? Ramsey Real Estate Reality Check.”
So, what is the outlook for our housing market in Augusta, now that rates are increasing even more?
My opinion is that the affordable housing market will continue to be competitive and hard to buy in. Now, more buyers will be trying to buy homes that are priced in the 250K range and under, making inventory still an issue. Higher valued property sales will start to slow down since fewer people will be able to afford them.
Last year, you could have purchased a home for $425k and had a mortgage payment of approximately $2,300 a month. Today, you will pay $2,300 a month to buy a home that is sold for 275K. Currently, there are 475 homes pending sale in the 150k-275K range and only 342 homes are listed as available.
There will always be a high demand for affordable homes. Prices will stabilize and we will return to normalization of appreciation to our market of about 4% – 8% a year, depending on location.
In this new market to stop inflation, people will stay in rental homes because they can’t afford to buy a home. Investors and people who have money will make more, and the central bank of the United States, and all banks, will make even more money on what they lend out.
The middle class will struggle more than they have over the last two decades, but nothing will stop the need and drive for us to have a place we call home!
